Trust Truth and Transparency

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Big Food Dilemma Each year, food brands launch better-for-you products that gain both significant consumer traction and loyalty as well as brand awareness. Consumer mistrust of the food system is giving rise to a number of new marketplace perceptions, trends and behavior. Among the most prominent is consumers’ growing belief that their food health and safety priorities would best be met not by the Big Food brands that have been relied on, in many cases for generations, but rather by smaller brands. Big Food companies are often laboring under monolithic, outdated legacy supply systems that were developed decades ago, while smaller companies’ systems are generally newer and more aligned with consumers’ demand for transparency. The result is nimble systems that can better accommodate the rising market for better-for-you foods. A large and growing number of consumers are branding Big Food companies as less in tune with their voices and overly profit-driven. According to the Natural Marketing Institute, a commanding 72 percent of Americans believe that most food and beverage manufacturers are focused on profit rather than on health. “In the last five years, the top 10 branded food manufacturers lost 4.3 percent of market share mainly to smaller and midsized companies.” – COMPANIES STEP UP EFFORTS TO REVEAL MORE DETAILS ON FOOD YOU EAT, THE WALL STREET JOURNAL, MARCH 13, 2016 Conversely, smaller food companies are being lauded for their strong devotion to consumer advocacy and health, and for their commitment to shared values and the public interest. A recent New Hope Network survey indicates that 67 percent of consumers had a “great deal” or “quite a lot” of trust in small companies, while only 21 percent had the same degree of trust in big businesses. One of the leading reasons for this perception can be traced back to supply systems. Acceleration in Acquisitions While Big Food brands continue to dominate sales, a recent Fortune Special Report: The War on Big Food shows that some may be struggling, with the top 25 US food and beverage companies having lost an equivalent of $18 billion in market share since 2009. What has followed is a strengthening migration to, and a host of new opportunities for, small companies, and a flurry of mergers and acquisitions by Big Food companies of smaller brands that allows for market entry with more convenience and less risk. Dealogic reports that in 2015, food merger and acquisition activity was responsible for more than $116 billion worth of deals between US companies, which stands as the largest dollar amount in at least two decades. Also, by the middle of 2016, disclosed food and beverage deals were valued at more than $43 billion, which although less than the $74 billion worth of deals during the same period in 2015, nonetheless ranks as the second-highest level overall since 2008. There are a number of food-industry acquisitions that have captured the attention and interest of large and small companies alike, both within and outside the food sector, as well as among investors and members of the media. 10 | THE RISE OF A NEW FOOD INDUSTRY MANDATE: TRUST, TRUTH AND TRANSPARENCY
GROWTH BY ACQUISITION Danone’s Acquisition of WhiteWave Foods In July 2016, Danone announced the acquisition of WhiteWave Foods for $12.6 billion, or 26.6x EBITDA. The acquisition represents a 24 percent premium over WhiteWave’s 30-day average closing price of $45.43, and the largest deal to date in the natural and organic foods industry. Danone believes the acquisition will create a unique global leader strongly aligned with consumer demand for healthier and more sustainable food and beverage options. The acquisition also provides Danone with a foothold in the fast-growing plant-based sector through the WhiteWave Silk, Alpro and Vega brands. The company estimates that the acquisition would likely make Danone, with its Stonyfield, Horizon and Wallaby brands, the largest buyer (by tons) of organic milk in the US. Plant-based alternatives to milk and yogurt are growing at an 11 percent Compound Annual Growth Rate (CAGR) in the US, while organic dairy is growing at eight percent. Pinnacle Foods’ Acquisition of Boulder Brands Pinnacle Foods announced in November 2015 that it would acquire Boulder Brands, a US food company based in Boulder, Colorado. Boulder Brands is known for its better-for-you brands such as Smart Balance, Udi’s, Glutino, Earth Balance, EVOL and Best Life. Pinnacle paid $967 million for Boulder Brands, or 22.1x EBITDA. Pinnacle’s health and wellness portfolio was further expanded by the acquisition, and the company plans to increase EBITDA by approximately 50 percent. General Mills’ Acquisition of Annie’s In September 2014, General Mills announced its acquisition of Annie’s, a Berkeley, California-based maker of natural and organic pastas, meals and snacks. General Mills paid $821 million for Annie’s, or 38.6x EBITDA. The acquisition is expected to expand General Mills’ presence in the US branded organic and naturalfoods industry, with General Mills planning to use its scale to further strengthen the Annie’s brand. THE RISE OF A NEW FOOD INDUSTRY MANDATE: TRUST, TRUTH AND TRANSPARENCY | 11
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Trust Truth and Transparency

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